Seattle Leads Charge with the Development of Less Expensive Efficiency Units

The rapidly rising cost of housing in tech-centered metros such as the San Francisco Bay Area and Seattle has made the need for affordable mid-range housing greater than ever. Many developers are beginning to incorporate small efficiency dwelling units, or “SEDUs,” into their proposals in an effort to increase their sites’ density and receive a greater return on their investment. According to a report recently released by Colliers International, these types of units are becoming increasingly common across Seattle not just in congregate buildings, but in developments with market rate units, as well. Seattle has led the nation in the development of micro-housing since 2009, and their popularity has increased as housing costs have soared.

“That is huge question,” said Jerrid Anderson, a vice president for Colliers when asked about the merits of SEDUs. “Year over year, Seattle has one of the fastest growth markets in the nation. If you take a lot of local residents with their live-work-play lifestyle who can no longer afford their old apartment unit, it becomes a perfect solution for keeping them in a clean, safe neighborhood they want to live in.”

While the bulk of Seattle’s SEDUs are located in places populated with students — Seattle’s University District and Roosevelt and Ravenna neighborhoods have a total of 1,729 such units — SEDUs are also popular with young professionals and people of all ages looking for a more affordable living situation.

“After we spent some time on our first listing, it was amazing to see the variety of people who lived in the micros,” explained Anderson. “It was about 10 percent students and a lot of service-level workers, a lot of middle-aged workers, and just a variety of people that lived there. Knowing there’s a broader demand for these, it became clear that they will become a very stable asset class.”

Most SEDUs range in size from 240 to 320 square feet and are typically compact studio apartments. The units usually have complete cooking and restroom facilities. Efficiency dwelling units, or “EDUs” are slightly larger; they range from 321 to 400 square feet and also contain a main living space. Compared to traditional, full size studio apartments, SEDUs will rent for about $1,286 per month, or $4.83 per square foot. Regular studios go for $1,521, according to Colliers’ report.

“Not everyone wants a large apartment,” said Anderson. “A small apartment, especially a well-built and designed one, [requires] less furniture and utility consumption. It’s a more efficient living style.”

The SEDUs range in price across Seattle. The North Seattle neighborhood has the cheapest units, which rent for $980 per month, or $3.56 per square foot, while the Central District had the most expensive. There, units rent for $1,336 per month, or $5.84 per square foot.

Another type of unit, called “micro-units” are even smaller than SEDUs and less expensive. Ranging from 140 to 250 square feet, they are not complete dwelling units. Often, they are made up of several private sleeping suites — they incorporate a bedroom and a bathroom — and common areas such as a kitchen, dining room and other facilities are shared with other occupants. Micros are even cheaper than SEDUs, and typically rent for $1,024 per month, or $4.91 per square foot. In 2009, when they were first introduced into the Seattle market, the units averaged $558 per month; that makes the increase to day’s pricing an 80 percent cumulative rent growth and a 6.7 year-over-year rent growth.

The report claims that “micros are the biggest little things to happen to apartment investments since tenant amenities,” but in September 2014, the King County Superior Court ruled that micro-housing units must go through the design review process. The city also amended legislation to discourage the development of congregate housing where micro-units were most likely to exist and also passed the “70-7” rule, which regulates the size and layout of specific rooms, preventing most units from being smaller than 300 square feet.

According to Anderson, when micros were introduced to the market and as they gained more traction, they received a good deal of pushback from both public officials and the greater community over concerns such as parking, safety and the health of living in such units.

“Another argument I heard was that these [units] were inhumane,” said Anderson of the City’s concerns over micro’s small size. “A few hundred square feet is actually plenty of space. I think the developers that I work with really want to build a very livable product.”

Developers do their best to make the most of the small spaces and work hard to utilize the available in the best way possible, said Anderson. Additional amenities like T.V. lounges and common spaces are popular, because builders want to make their projects more “sticky,” or appealing to long term renters who are looking to lease spaces and don’t intend to move for at least six to nine months.

“The impetus for creating this study was clarity,” said Anderson. “If you’re not living in these units or building or selling, you don’t quite understand how they operate. I think generally people see the size and make their own assumptions about who lives there and why they live there. These are hardworking people from all walks of life.”

There are currently 6,297 SEDU and micros as part of Seattle’s greater inventory. 2,659 units are under construction and an additional 2,040 are planned for future development, according to the report. The existing stock of micros and SEDUs grew by 10 percent in 2018, and vacancy rates hover around five percent. Although Anderson admitted that it is currently a “buyers market,” but as knowledge of SEDUs and micros become more mainstream, experts familiar with this type of housing product expect the submarket to shift.

“We’ve seen leases go quite well for these smaller units,” said Anderson. “Lease-ups go quickly, and they actually continue to see market rent growth and vacancy. [Conditions] will only get better for the property owner.”